Challenges of Retirement Plans with Union Members

Retirement plans at organizations where the workforce is
largely unionized have the unique challenge of being obligated to negotiate
plan terms with the union. It’s a process that can be very burdensome, experts
say, but also very rewarding.

When a retirement plan is run at an organization with a
union, the collective bargaining agreements trump the retirement plan document,
as specified by the National Labor Relations Act, according to David Kern,
partner with the labor and employment practice and chair of the National Labor
Relations Act team at Quarles and Brady LLP, in Milwaukee. “Any changes to the
plan need to be bargained with the union,” Kern says.

Retirement plans at non-union organizations typically have a
provision that the employer has the right to modify the plan at any time, says
Amy Ciepluch, chair of the employee benefits and executive compensation team at
Quarles & Brady. At a union shop, however, “that type of language would not
trump what a collective bargaining agreement guarantees. The collective
bargaining agreement would govern.”

The union can be counted on to push for improvements in wages,
health benefits, eligibility, retirement age, early retirement terms, how to
handle leaves of absence, employer contributions, and, if the retirement plan
is a defined benefit plan, the pension benefits, says Jeff Witt, a principal
with Groom Law Group in Washington, D.C. Those pension benefits are negotiated
every time the contract is renewed, typically every two to five years, Kern
says.

“Most defined benefit plans in the union context will
promise a benefit [based on] years of service times a multiplier guaranteeing
monthly income,” and each time the contract is renewed, the union will likely bargain
for that multiplier to be increased, Ciepluch says. So, if a union member has
30 years of service with a multiplier of $31, he would receive $930 a month,
she says. “Or, if they retire early, the employer might do an actuarial
reduction, and that would be another subject of bargaining,” Ciepluch says.

NEXT: Matching plan
documents

If the retirement plan is a 401(k) defined contribution
plan, the union will negotiate for eligibility to participate, the company
match and formula, and how long the employees have to work to become vested,
she says.

Then there are multiemployer defined benefit pension plans
created by collective bargaining agreements that cover eligible union members
at more than one employer, such as the United Automobile Workers, notes Marcia
Wagner, partner with the Wagner Law Group in San Francisco. Besides all of the
bargaining points at other types of union retirement plans, these plans are
subject to “the potential risk of other employers withdrawing from the plan,”
she says. “This is akin to being the last person at the table when the waiter
brings the check to the table.”

For sponsors and advisers working with a union retirement
plan, “the biggest challenge is to align disparate parties' interests," says Josh Gottlieb, chairman and CEO of The Gottlieb
Organization in Chagrin Falls, Ohio. "To find a solution, we first work to understand each party's issues. Once we understand each party's expectations, we can then develop financial solutions that will be acceptable to both sides, and then we educate each party as to how the solution meets their goals."

It is important for advisers to make sure that the plan
document matches the terms of the collective bargaining agreement, Ciepluch
says. “A lot of employers go through a prolonged bargaining process and forget
that they need to update their plan document,” she says. “If an employer fails
to do that, there are ways to fix it, but it is far preferable to continuously
update the document as needed, not when the Internal Revenue Service [IRS] is auditing
the plan. The summary plan description [must also] be accurate and correctly
reflect the benefits that you bargained for with the union.”

Collective bargaining agreement are habitually misaligned
from the plan document, agrees James Obermanns, member of Dykema in Bloomfield
Hills, Michigan. There are “frequent disconnects between the plan document that
goes to the IRS and the collective bargaining agreement,” he says. While those
discrepancies “won’t cause huge penalties [with the IRS] or disputes with the
union, the IRS doesn’t like retroactive amendments. It is much better for the
company negotiators to communicate [changes to the plan committee] up front and
get that done as it is happening.”

NEXT: Employee
disputes

Another common area where problems arise in a retirement
plan with union members is if an employee disputes what they are entitled to,
Kern says. Unions typically handle disputes through grievance arbitration, but
if the issue relates to the pension or 401(k) plan, it is far preferable to
appeal under the retirement plans because there are “better standards of
review” along with “deference to the plan administrator.” That way, Ciepluch
adds, the employer has a little more control over the outcome.

Ronald Santo, senior counsel at Dykema in Ann Arbor,
Michigan, says that a big trend at union shops over the past 10 years has been
the move from defined benefit (DB) plans to 401(k)s and other types of defined
contribution (DC) plans, which results in highly complicated negotiations. “You
get generational issues when you are dealing with a union,” Santo days.
“Frequently, the [pension plan] committee is dominated by older employees who
want to retain their defined benefit plan, whereas younger employees want a
defined contribution plan because they are more apt to switch jobs. It’s a
highly political process.”

The reason why employers are moving from DB to DC is because
“many union plans are underfunded, some more significantly than others, and
this is a problem,” Wagner says. “This comes from economic recessions, such as
the most recent events of 2008 and beyond, the decreasing membership of union
participants, and Baby Boom pressure on liquidity and payout.”

The bottom line is that it is very important for sponsors to
negotiate very carefully with unions about their pension or 401(k), Santo says.
“Pensions and retirement income are very important to employees,” he says. “It
is a high priority for unions and their members. You cannot address it
cavalierly.”